Importing

Starting a new business based on importing items from overseas seems so easy – after all everything seems so cheap in America, or China or almost any place else – besides Israel!

This might be right, but then again, it might not be.  Your in-depth analysis of whether a business is worth it or not is critical when deciding about any business and importing is no different.

First, only a business entity can import a commercial quantity of goods.  Up to two items can be considered personal import.  More than two is a commercial quantity and you must be a business, with VAT id to import these goods.

Second, you must determine if permits are required for the product you want to import.  Most food and heath items require permits.  All electric items that plug into an outlet require a permit from the Standards Institute.  

A licensed customs broker can help you determine what permits you need, although in most cases you should investigate on your own.  Unless the customs broker has extensive experience with your line of products, he or she may not know the best way to categorize your products and your own investigation will contribute to your saving money on taxes and time with permits.

Every product has an HS code (Harmonized System). The HS code is an internationally accepted coding system used by Customs.  Asking your supplier for the HS code will save you time and effort in determining the item’s tax rate and if permits are required.

Most finished goods are taxed at 12%, while most raw materials are taxed at 8%.  If goods are made and imported from a country with a “free trade” with Israel, you will need to supply the appropriate Certificate of Origin and then you will be exempt of the 8% - 12% Customs Duties mentioned above.  There is no exemption from VAT (currently 18%), although as a business, this does not really cost you as it is a pass through tax.

So far, we have discussed taxes and permits…the next step in determining the viability of an import business will revolve around the cost of shipping.  You can buy goods from your supplier, including shipping to your door, although this is very rare.  In most cases you will buy with FOB or EXW terms.

FOB means Free on Board and means the supplier is responsible for delivering the goods to the port or your shipper’s warehouse and taking care of export customs formalities. You will be responsible for shipping from the port to the final destination.

EXW means Ex Works and means you are responsible for picking up the goods at your supplier’s warehouse and all shipping costs to the final destination.

If you are in a hurry to get your product, you will consider air cargo.  While very expensive, it is also very quick.  With light weight and compact products, this may be the most economical way to ship.   When considering small air shipments, courier (such as DHL, UPS or Fedex) is often the best way to ship as they will provide door to door service.  

You might also consider the Postal Service’s Express Mail service, although this will take 2 – 4 days longer than the private courier service.  The best advantage with Express Mail is they usually do not take into account volume which considerably increases the cost with the private courier service.  This policy can change so you will want to verify this when you are ready to ship.

If the shipment is larger, then you will probably ship via air cargo.  When considering air cargo, you must verify the maximum  pallet size that will fit in the plane.  Different planes have different loading capacities.  You don’t want your shipment delayed until the plane with the right size cargo hold flies on your lane.  

Air shipment charges are based on weight with a minimum charge of 10 lbs to the cubic foot (or 167 kgs to the cubic meter.) This means a bulky light weight item will be very expensive to ship via air.  

Ocean shipments take longer and are significantly cheaper than air shipments.  An ocean shipment can be via an exclusive container, called an FCL (Full Container Load).  FCLs come in three sizes – 20 foot, 40 foot and 40 foot “High Cube” which is one foot higher.

If you have less than a full container, you will probably ship your goods as an LCL (Less than Container Load).  In this case you will pay by volume – either per cubic foot or per cubic meter.  In rare cases where you ship heavy items such as printed goods or stone, your charge will be based on the rate of 1 ton being charged at the rate of 1 cubic meter.

Your forwarder will handle all shipping arrangements.

In either case, air or sea shipment, you will need a licensed Customs Broker to clear your goods through Customs.  Most brokers have representatives at the airport (Ben Gurion) and the sea ports (Ashdod, Eilat and Haifa).  Once cleared, you or your forwarder will arrange delivery of the goods from the port to your warehouse.  You will want to do this as quickly as possible to avoid or at least limit expensive port storage fees.

This brief outline gives you a few pointers to help make your business a success, but obviously there is much more to learn and check before making the decision to start an import business.  You must prepare profit and loss and cash flow projections (don’t forget the VAT payment required to clear your goods through Customs – an outlay long before you have any income.)

These projections will include all your operating expenses.  Remember, your salary is one of those important expenses as well.

With a lot of hard work, long hours, much Siyatta Dishmaya, BE”H, you can make a business succeed in Israel.